Fiscal Policy, The Great Depression, and The New Deal: In-Depth Notes

Introduction to Fiscal Policy and the Great Depression

• Capitalism at Its Finest

  • Time of widespread prosperity driven by factors such as:

  • Post-war optimism

  • Construction boom

  • Growth in consumer goods

  • Increase in real wages

  • Women's right to vote

  • Decline in union membership

  • U.S. becomes the richest country per capita

  • Rise of consumerism through mass production

Prelude to the Great Depression

• Dawn of the Great Depression

  • Initiated by a significant drop in the stock market, leading to panic among investors

  • Massive sell-off of stocks on the New York Stock Exchange was triggered by:

  • Increased trading volume

  • Lack of buyers leading to falling prices

Understanding Business Cycles

• Business Cycles Defined

  • Economies experience alternating periods of good (expansion) and bad (recession) times

  • Bottom or “trough” referred to as a recession

  • Severely prolonged downturns categorized as depressions

  • Impacts of Business Cycles

  • Business failures and layoffs

  • Resulting decrease in demand and further price drops

Causes of Economic Downturn

• Contributing Factors

  • More sellers than buyers leading to price drops

  • Bank runs as people withdraw cash but banks lack liquid assets